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AI TextQuick Glance (AI)Headnote
Assessee's long-term capital gains on shares upheld despite broker's SEBI penalty with complete documentation
ISSUES PRESENTED and CONSIDEREDThe primary issue considered was whether the addition of Rs. 2,48,02,084/- made by the Assessing Officer (AO) as income from other sources, instead of recognizing it as a long-term capital gain exempt under Section 10(38) of the Income Tax Act, 1961, was justified. The core questions included:
1. Whether the shares in question were genuinely purchased and sold, thus qualifying for exemption as a long-term capital gain.
2. Whether the involvement of a broker penalized by SEBI affected the legitimacy of the transactions.
3. Whether the CIT(A)'s reliance on precedents was appropriate given the facts of the case.
4. Whether the findings from previous assessment years could be applied to the current assessment year.
ISSUE-WISE DETAILED ANALYSIS
1. Legitimacy of Share Transactions
Relevant Legal Framework and Precedents: The Income Tax Act, 1961, specifically Section 10(38), exempts long-term capital gains from tax if certain conditions are met. The AO relied on precedents such as CIT Vs. Durga Prasad More and CIT Vs. P. Mohankala to argue against the genuineness of the transactions.
Court's Interpretation and Reasoning: The Tribunal noted that the assessee provided comprehensive documentation, including purchase and sale bills, demat account statements, and bank statements, proving the genuineness of the transactions. The shares were held in a demat account for four years, indicating long-term holding.
Key Evidence and Findings: The Tribunal found no discrepancies in the documentation provided by the assessee. The shares were purchased and sold through recognized stock exchanges, and all transactions were conducted via account payee cheques.
Application of Law to Facts: The Tribunal applied Section 10(38) and found that the transactions met the criteria for long-term capital gains exemption.
Treatment of Competing Arguments: The Tribunal dismissed the AO's argument that the involvement of a penalized broker tainted the transactions, noting that the broker's penalty was unrelated to the specific transactions in question.
Conclusions: The Tribunal concluded that the transactions were genuine and qualified for exemption as long-term capital gains.
2. Impact of Broker's SEBI Penalty
Relevant Legal Framework and Precedents: The AO argued that the penalty imposed on the broker by SEBI indicated manipulation, relying on the SEBI order against the broker.
Court's Interpretation and Reasoning: The Tribunal found that the SEBI penalty was for a different period and did not directly relate to the transactions under review. The broker involved in the sale was not penalized.
Key Evidence and Findings: The Tribunal noted that the SEBI order did not quantify any disproportionate gains or unfair advantages from the broker's actions during the relevant period.
Application of Law to Facts: The Tribunal determined that the SEBI penalty had no bearing on the legitimacy of the transactions for the assessment year in question.
Treatment of Competing Arguments: The Tribunal rejected the AO's reliance on the SEBI penalty, emphasizing the lack of direct connection to the transactions.
Conclusions: The Tribunal concluded that the SEBI penalty did not invalidate the transactions.
3. Appropriateness of CIT(A)'s Reliance on Precedents
Relevant Legal Framework and Precedents: The CIT(A) relied on various precedents where similar transactions were deemed genuine.
Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A)'s reliance on precedents, noting that the facts of the case aligned with those in the cited judgments.
Key Evidence and Findings: The Tribunal found that the CIT(A) appropriately applied precedents to the facts of the case.
Application of Law to Facts: The Tribunal upheld the CIT(A)'s application of relevant case law.
Treatment of Competing Arguments: The Tribunal dismissed the AO's argument that the precedents were inapplicable, citing the factual similarities.
Conclusions: The Tribunal concluded that the CIT(A) correctly applied precedents.
4. Applicability of Previous Assessment Years' Findings
Relevant Legal Framework and Precedents: The AO argued that findings from previous assessment years should apply to the current year.
Court's Interpretation and Reasoning: The Tribunal noted that the previous findings were overturned by the ITAT, which had accepted the transactions as genuine.
Key Evidence and Findings: The Tribunal highlighted the ITAT's prior decision, which supported the assessee's position.
Application of Law to Facts: The Tribunal found that the previous assessment years' findings were not applicable due to the ITAT's reversal.
Treatment of Competing Arguments: The Tribunal rejected the AO's argument, emphasizing the ITAT's earlier decision.
Conclusions: The Tribunal concluded that the previous findings were not applicable to the current assessment year.
SIGNIFICANT HOLDINGS
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, affirming the genuineness of the long-term capital gain. It emphasized that each case must be judged on its own facts and evidence, and the presence of a penalized broker did not automatically invalidate the transactions. The Tribunal also noted that the SEBI penalty did not directly relate to the transactions in question, and the CIT(A)'s reliance on precedents was appropriate given the factual similarities. The Tribunal concluded that the AO's addition was based on conjecture and surmise, and the CIT(A) was justified in granting relief to the assessee. The appeal by the Revenue was dismissed.
Assessee's long-term capital gains on shares upheld despite broker's SEBI penalty with complete documentation
ITAT Indore dismissed revenue's appeal regarding denial of LTCG on share transactions. Assessee purchased shares through penalized broker but provided complete documentation including purchase/sale records, account payee cheques, and demat account details. Shares were held for four years with only partial sale while remaining quantity carried forward. AO found no documentary defects and transactions occurred through recognized stock exchange. ITAT held that SEBI penalty against broker was irrelevant as broker's role ended after initial purchase. CIT(A)'s deletion of addition was upheld, with tribunal noting each penny stock case depends on specific facts and evidence presented.
Bogus share transactions - shares were purchased from a broker who was penalized by SEBI for malpractices with mala fide intention - denial of LTCG - CIT(A) deleted addition - HELD THAT:- The assessee has submitted all details and documentary evidences in support of purchase, sales and holding of impugned shares. The AO has not found any infirmity in those documents. The shares were purchased and sold online through recognized stock exchange. The purchase price was paid through A/c payee cheques and the sale consideration was also received through A/c payee cheques. Immediately after purchase, the shares were credited to assessee’s demat A/c and they were held therein for a period as long as 4 years before sale.
It is an undisputed fact that the assessee has sold only part of the holding and even after such sale, continued to hold remaining quantity which were carried to subsequent year. The AO has not identified any iota of negativity in these factors. Regarding the penal action taken by SEBI, we note that the said action was taken against Shyam through whom the assessee purchased shares in the year 2004-05. Thereafter, Shyam does not have any role. As both sale and purchase are very much established/accepted. At the cost of repetition, we may also add that during entire period of 4 years from purchase to sale, the assessee had held the impugned shares in Demat A/c with Indusind Bank. Thus, no adverse conclusion can be taken on the basis of mere imposition of penalty by SEBI on Shyam who had no role except purchase of shares in the year 2004-05.
We finally conclude that the Ld. CIT(A) was very much justified in deleting the addition made by AO. We approve his action. The revenue fails in this appeal.
Before parting, we would like to make a specific note that there is a plethora of decisions by Hon’ble courts/benches of ITAT on what is called “penny stock” in favour of assessee as well as revenue. But every case has its own set of facts/evidences and there cannot be a single view in all cases. The present case has its own set of facts/evidences and it cannot be used as indicating something universal applicable to every situation. Appeal of Revenue is dismissed.
AI TextQuick Glance (AI)Headnote
Penalty under Section 271(1)(c) set aside due to invalid notice and lack of concrete evidence for accommodation entries
ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the assessee, M/s. Goldstar Finvest Pvt. Ltd., had concealed particulars of income or furnished inaccurate particulars of income during the assessment proceedings, thereby justifying the imposition of a penalty under section 271(1)(c) of the Income Tax Act, 1961.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework revolves around section 271(1)(c) of the Income Tax Act, 1961, which pertains to the imposition of penalties for concealing income or furnishing inaccurate particulars of income. The Tribunal also referenced the judgment of the Hon'ble Bombay High Court in Md. Farhan A Sheikh vs. ACIT, which established that a penalty under section 271(1)(c) is not leviable if an invalid notice is issued to the assessee.
Court's Interpretation and Reasoning
The Tribunal examined whether the Assessing Officer (AO) had issued a valid notice under section 271(1)(c) read with section 274 of the Act. The Tribunal found that the notice was vague and did not specify whether the penalty was for concealing income or furnishing inaccurate particulars. This vagueness rendered the notice invalid, as it failed to inform the assessee of the specific charge against them, as required by law.
Key Evidence and Findings
The Tribunal noted that the addition of income was based on an estimation of commission income at 0.15% for providing bogus entries. The AO initially estimated the commission income at 2%, which was later reduced by the Tribunal to 0.15%. The Tribunal found that the entire addition was based on estimation and guesswork, without concrete evidence of concealment or inaccuracy in particulars.
Application of Law to Facts
The Tribunal applied the legal principles established in the Md. Farhan A Sheikh case, emphasizing that penalty proceedings must stand on their own and cannot rely on defective notices. The Tribunal concluded that since the AO failed to issue a valid notice, the penalty proceedings were unsustainable.
Treatment of Competing Arguments
The assessee argued that the penalty proceedings were initiated without a valid notice, and the addition was based solely on estimation. The Tribunal agreed with the assessee, finding that the AO did not provide a clear basis for the penalty and relied on estimated figures without independent verification.
Conclusions
The Tribunal concluded that the penalty imposed by the AO and confirmed by the CIT(A) was not sustainable due to the invalid notice and the reliance on estimation rather than concrete evidence of concealment or inaccurate particulars.
SIGNIFICANT HOLDINGS
The Tribunal held that:
"Since the AO has failed to initiate the penalty proceedings under section 271(1)(c) of the Act by issuing the valid notice, penalty levied by the AO and confirmed by the Ld. CIT (A) is not sustainable in the eyes of law as the assessee has never been informed about the charges framed to initiate the penalty proceedings through statutory notice."
The Tribunal emphasized that penalty proceedings must be based on valid notices and concrete evidence, not estimations or vague notices.
Core Principles Established
The judgment reinforced the principle that penalty proceedings under section 271(1)(c) require a valid notice specifying the exact charge against the assessee. It also underscored the necessity of basing penalties on concrete evidence rather than estimations.
Final Determinations on Each Issue
The Tribunal determined that the penalty imposed was unsustainable and ordered its deletion. The appeal filed by the assessee was allowed, and the penalty was set aside.
Penalty under Section 271(1)(c) set aside due to invalid notice and lack of concrete evidence for accommodation entries
ITAT Mumbai set aside penalty u/s 271(1)(c) imposed on assessee for alleged accommodation entries. The tribunal held that the penalty notice was invalid as the AO failed to specify whether it was for concealing income particulars or furnishing inaccurate particulars, following the precedent in Md. Farhan A Sheikh case. Additionally, since the entire addition was based on estimation and guesswork rather than concrete evidence of concealment or inaccurate particulars, the penalty was unsustainable. The addition was progressively reduced from 100% by AO to 2% by CIT(A) to 0.15% by the tribunal, confirming its estimative nature.
Penalty u/s 271(1)(c) - Commission income in business of accommodation entries - whether the assessee has concealed particulars of income or has furnished inaccurate particulars of such income during assessment proceedings? - HELD THAT:- Bare perusal of the notice issued in this case by the AO goes to prove that the AO at the time of issuing the notice was not satisfied if he was initiating the penalty against the assessee for concealing particulars of his income or for furnishing inaccurate particulars of such income.
This issue has been decided in case of Md. Farhan A Sheikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] and held that penalty u/s 271(1)(c) is not leviable when invalid notice as in the instant case has been issued to the assessee.
Undisputedly entire addition in this case was made/confirmed by the AO as well as the CIT (A) on the basis of estimation and guess work on the alleged bogus entry provided by the assessee during the year under consideration initially @ 100% by the AO, which was reduced by the Ld. CIT (A) to 2% of the turnover, which was further reduced by the Tribunal to 0.15% of total bogus entries provided.
Thus, we are of the considered view that when the entire addition has been made on the basis of estimation, penalty levied by the AO and sustained by the CIT (A) is not sustainable.
When entire addition in this case is on estimation basis and at no point of time Revenue Authorities have reached the specific conclusion that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income rather made the addition on the basis of information received from Sales Tax Department without conducting any independent enquiry as to the alleged bogus purchases, the penalty levied by the AO and confirmed by the CIT (A) is not sustainable in the eyes of law. Decided in favour of assessee.
AI TextQuick Glance (AI)Headnote
Revenue's appeal dismissed as Department failed to prove non-genuineness of unsecured loans under Section 153A assessment
Revenue's appeal dismissed as Department failed to prove non-genuineness of unsecured loans under Section 153A assessment
ITAT Mumbai dismissed Revenue's appeal in assessment u/s 153A case. The tribunal held that the Department failed to substantiate any incriminating material found during search to establish non-genuineness of unsecured loans. While book entries could be false due to incriminating material discovered during search, the entries themselves are not incriminating material unless proven false through other evidence. The additions made u/s 68 were deleted as no incriminating material justified the additions.
Assessment u/s 153A - incriminating material was found to justify the addition or not? - additions made u/s 68 - HELD THAT:- DR has failed to substantiate any incriminating material found during the course of search which could establish non-genuineness of the unsecured loan. As far as his arguments of falsity of the books of accounts is concerned, we are of the opinion that any entry in the books of accounts could be false as a result of any incriminating material discovered during the search.
So, falsity of books of account in recording the entries of unsecured loan may be as a result of any incriminating material found and but those entries are not incriminating material in itself unless established to be false by way of other incriminating material.
No infirmity in the same. Accordingly, we uphold the same. The grounds of appeal of the Revenue are accordingly dismissed.
AI TextQuick Glance (AI)Headnote
Tribunal Quashes Assessment Order Due to Timing Error; Appeal by Assessee Allowed, Assessing Officer's Appeal Dismissed.
Issues:
1. Transfer pricing adjustment based on CUP method.
2. Jurisdictional issue regarding time limits for passing orders.
3. Validity of transfer pricing order and assessment order.
Analysis:
Issue 1: Transfer pricing adjustment based on CUP method
The appeal involved a dispute regarding the Transfer Pricing Officer's adjustment of an international transaction amounting to &8377; 5,979,23,256 under the Comparable Uncontrolled Price (CUP) method. The Assessing Officer contended that the adjustment was not at arm's length as per sections 92C(1) and 92C(2) of the Income-tax Act, 1961. The CIT (A) had rejected the CUP method and adopted the Profit Method instead. The appellant challenged the rejection of the CUP method, arguing that the data used was contemporaneous, and the net present value was determined with a reasonable discount factor. The dispute centered on the methodology used for the transfer pricing adjustment.
Issue 2: Jurisdictional issue regarding time limits for passing orders
The jurisdictional issue arose concerning the time limits for passing orders under Section 153B and Section 92CA(3) of the Act. The search conducted by the Income Tax Department led to the issuance of a notice under Section 153A in February 2011. The Transfer Pricing Officer passed the order under Section 92CA(3) in January 2014. However, the order was delayed by one day, rendering the adjustment proposed by the Transfer Pricing Officer barred by limitation. The assessment order was passed beyond the prescribed time limit, raising questions about the validity of the orders issued by the authorities.
Issue 3: Validity of transfer pricing order and assessment order
The Tribunal considered the jurisdictional issue crucial, as it impacted the eligibility of the assessee under Section 144C(15) of the Act. Citing precedents, the Tribunal held that the delay in passing the transfer pricing order affected the validity of the assessment order. Referring to a similar case, the Tribunal concluded that when an assessee ceases to be an eligible assessee, there is no extension of time limit available for making transfer pricing orders. Consequently, the assessment order passed by the Assessing Officer was deemed invalid and quashed. The Tribunal allowed the additional ground of appeal filed by the assessee, rendering the other grounds in the appeal and cross-objection irrelevant and dismissing them.
In conclusion, the Tribunal allowed the appeal of the assessee, dismissed the cross-objection, and the appeal of the Assessing Officer. The decision was pronounced in open court on 28th April 2023.
Tribunal Quashes Assessment Order Due to Timing Error; Appeal by Assessee Allowed, Assessing Officer's Appeal Dismissed.
The Tribunal quashed the assessment order due to the jurisdictional issue of time limits, as the Transfer Pricing Officer's order was delayed by one day, rendering it invalid. Consequently, the appeal by the assessee was allowed, and both the cross-objection and appeal by the Assessing Officer were dismissed.
Validity of TP adjustment order as barred by limitation - HELD THAT:- TPO has passed the order on 30th January, 2014 which should have been passed on or before 29th January, 2014 and therefore, there is delay of one day in passing the transfer pricing order. Therefore, the adjustment proposed by TPO is barred by limitation.
As the transfer pricing adjustment are invalid, the assessee is not falling in the definition of ‘eligible assessee’ as per provision of Section 144C (15) of the Act as assessee is not a foreign company. Assessment order should have been passed on or before 31st March, 2014 but has been passed on 27th May, 2014. The final assessment order passed is also barred by limitation.
On identical facts and circumstances in Atos India Private Limited V[2023 (2) TMI 1112 - ITAT MUMBAI] wherein it has been held that when assessee does not remain eligible assessee there is no extension of time limit available for making order of TP to the learned Transfer Pricing Officer of further one year and therefore the final assessment order passed also becomes barred by limitation. Therefore we hold that the assessment order passed by AO is also barred by the limitation and hence, quashed. Assessee appeal is allowed.
AI TextQuick Glance (AI)Headnote
TPO's use of captive power plant rates rejected for benchmarking arm's length price in transfer pricing dispute
Issues Involved:
1. Deletion of the addition of Rs.5,41,09,614/- on account of upward adjustment.
2. Determination of whether the rate at which CSPDCL purchases power from captive power plants constitutes an uncontrolled transaction.
3. Consideration of external comparable uncontrolled price (CUP) for determining the purchase price by CSPDCL.
4. General errors in the order of CIT(A).
5. Any other grounds raised during the appeal.
Summary:
Issue 1: Deletion of the Addition of Rs.5,41,09,614/- on Account of Upward Adjustment
The revenue challenged the deletion of an upward adjustment of Rs.5,41,09,614/- made by the Assessing Officer (AO) based on the Transfer Pricing Officer's (TPO) findings. The TPO observed that the price paid by the assessee to its Associated Enterprise (AE) for power was higher than the rate paid by the State Electricity Board. The TPO proposed an upward adjustment by adopting the rate at which CSPDCL purchased power from Captive Power plants. However, the CIT(A) found that the rate of Rs.3.07 per unit could not be used as a comparable transaction for benchmarking the Arm's Length Price (ALP) of the electricity purchased by the assessee from its AE. The CIT(A) relied on various judicial precedents, including decisions from the Income Tax Appellate Tribunal (ITAT) and the jurisdictional High Court, to conclude that the rate adopted by the assessee was justified.
Issue 2: Determination of Whether the Rate at Which CSPDCL Purchases Power from Captive Power Plants Constitutes an Uncontrolled Transaction
The CIT(A) observed that the rate at which CSPDCL purchases power from Captive Power plants is not an uncontrolled transaction due to the monopoly of CSPDCL and the regulatory environment. The CIT(A) emphasized that the Comparable Uncontrolled Price (CUP) should be derived from transactions in an uncontrolled environment, and the internal CUP (rate at which the assessee purchased power from CSEB) is preferable to the external CUP.
Issue 3: Consideration of External Comparable Uncontrolled Price (CUP) for Determining the Purchase Price by CSPDCL
The CIT(A) noted that the TPO erred in applying the external CUP instead of the internal CUP. The CIT(A) highlighted that the rate at which CSPDCL purchases power from Captive Power Producers (CPP) cannot be considered as a comparable transaction due to the controlled nature of such transactions and the monopoly of CSPDCL. The CIT(A) relied on the decision of the ITAT in the case of Nalwa Steel Power Limited vs. ACIT, which recognized that generating stations are obligated to sell extra power at the lowest price, which cannot be equated to the market price.
Issue 4: General Errors in the Order of CIT(A)
The revenue contended that the order of the CIT(A) was erroneous both in law and on facts. However, the CIT(A) provided a detailed analysis and justification for its decision, relying on judicial precedents and the specific facts of the case.
Issue 5: Any Other Grounds Raised During the Appeal
No additional grounds were raised during the appeal.
Conclusion:
The ITAT upheld the decision of the CIT(A), finding that the issue was squarely covered by previous decisions of the Tribunal and the jurisdictional High Court. The Tribunal noted that the CIT(A) had correctly applied the principles and judicial precedents in determining the ALP and deleting the addition made by the AO. Consequently, the appeal of the revenue was dismissed.
TPO's use of captive power plant rates rejected for benchmarking arm's length price in transfer pricing dispute
ITAT Raipur ruled against revenue in a transfer pricing dispute involving power purchase from associated enterprise. TPO adopted Rs.3.07 per unit rate paid by State Electricity Board to captive power plants as comparable for benchmarking arm's length price. CIT(A) rejected this comparison. ITAT upheld CIT(A)'s decision, following precedent from Mahendra Sponge and Power Ltd case and Chhattisgarh HC ruling in Godavari Power case, which established that market rates from State Electricity Board should be used for comparison rather than rates paid to captive power plants.
TP Adjustment - price paid by the assessee to its AE for purchase of power was higher than the rate paid by the State Electricity Board for purchase of power from Captive Power plants - as observed by the TPO that there was a basic difference between purchase of power by the assessee directly from its AE as against that made from a non-AE, thus adopted the average rate of Rs.3.07 per unit at which Chhattisgarh State Power Distribution Company Ltd, i.e a non-AE had purchased power from Captive Power plant as a comparable to benchmark the ALP of per unit rate of 32208103 units of electricity purchased by the assessee company from its AE -
as observed by the CIT(A) that the price at which Chhattisgarh State Power Distribution Company Ltd. had purchased power from Captive Power plants, i.e. at the rate of Rs.3.07 per unit could not have been adopted as a comparable transaction for benchmarking the ALP of per unit rate of electricity purchased by the assessee company from its AEs - HELD THAT:- We find that on an earlier occasion the Tribunal in the case of Mahendra Sponge and Power Ltd [2022 (8) TMI 1445 - ITAT RAIPUR], had observed, that the issue presently under consideration before us was squarely covered by its earlier decision passed in the case of ACIT vs. Godavari Power and Ispat Ltd. [2011 (11) TMI 107 - ITAT, BILASPUR]. As further observed by the Tribunal that the Hon’ble High Court of Chhattisgarh in the case of CIT vs. Godavari Power and Ispat Ltd [2016 (2) TMI 1375 - CHHATTISGARH HIGH COURT] had observed, that the lower appellate authorities had rightly computed the market value of the power after comparing the same with the rate at which power was available in the open market, namely the price charged by the Chhattisgarh State Electricity Board. Decided against revenue.
AI TextQuick Glance (AI)Headnote
Reassessment orders under Section 148A(d) quashed for denying cross-examination of third parties whose statements formed basis
Issues involved:
The appeal challenges the order dismissing the writ petition regarding a reassessment under Section 147 of the Income Tax Act, 1961, based on an order under Section 148A(d) of the Act.
Analysis:
The Court examined whether the appellant was given a reasonable opportunity of hearing during the reassessment proceeding. The process began with a show cause notice under Section 148A(b) of the Act, containing various allegations and extracted documents. The appellant raised concerns that the information did not pertain to them, and they were not provided with incriminating documents or the opportunity to cross-examine certain individuals. Despite the appellant's requests, the assessing officer proceeded to pass an order under Section 148A(d) without addressing these issues adequately. The Court noted inconsistencies in the assessing officer's actions and emphasized the importance of following principles of natural justice.
Violation of Natural Justice:
The Court found serious violations of natural justice in the reassessment process. The assessing officer failed to provide essential information to the appellant, did not allow cross-examination of relevant individuals, and did not follow proper procedures before passing the reassessment order under Section 148A(d) of the Act. As a result, the Court quashed the order and directed the matter to be restored to the stage of the show cause notice under Section 148A(b) for proper consideration.
Remedial Action:
The Court allowed the appeal, set aside the previous order, and quashed the reassessment order under Section 147 of the Act. The assessing officer was instructed to provide the requested documents, allow cross-examination of relevant individuals, and proceed with the reassessment in accordance with the law and principles of natural justice. The Court also permitted a personal hearing for the authorized representative of the appellant, with a directive not to raise the question of limitation during the fresh reassessment proceeding.
Reassessment orders under Section 148A(d) quashed for denying cross-examination of third parties whose statements formed basis
The HC quashed reassessment orders under Section 148A(d) and subsequent reassessment due to violation of natural justice principles. The assessing officer failed to provide third-party information that formed the basis of the show cause notice and denied the assessee's request for cross-examination of third parties whose statements were relied upon. The court found the AO's offer to allow cross-verification after passing the order was procedurally incorrect, as such opportunity should have been provided before issuing the Section 148A order. The matter was restored to the show cause notice stage under Section 148A(b). Assessee's appeal was allowed.
Maintainability of writ petition against reassessment orders - denial of natural justice - opportunity of cross-examination/cross-verify the evidences not given - fundamental principles laid down for reopening an assessment by incorporating Section 148A ignored - HELD THAT:- On going through the reassessment order, we find that the assessing officer was fully aware of the writ petition, which was pending before the Court and yet to be taken up for hearing and the assessing officer would observe that there is no order passed by this Court restraining him or directing him to keep abeyance from the proceeding and by referring to Section 153 of the Act the assessment has been completed.
Various dates have been stated in the preceding paragraphs to show how the assessee has been dealt with by the assessing officer in the matter - we are confined to the aspect that there has been violation of principles of natural justice. The manner in which the reassessment proceeding has been taken through by the assessing officer is thoroughly flawed.
The fundamental error committed by the AO in not providing the third party information, which was the basis for issuance of the show cause notice apart from making available those third parties for cross-examination by the assessee when statements recorded by them have been relied upon for issuance of the show cause notice, more particularly, in spite of specific request made by the assessee in this regard. That apart, after passing the order under Section 148 of the Act the assessing officer could not have stated that if the assessee wishes to cross-verify/cross-examine the evidences they may do so after taking prior appointment from him. In fact, such opportunity should have been provided prior to passing of the order u/s 148A of the Act.
Thus, we are fully convinced that the procedure adopted by the assessing officer is wholly incorrect and there has been serious violation of principles of natural justice committed by the assessing officer in the entire process - order passed u/s 148A(d) and the consequential reassessment order have to be necessarily quashed and the matter should be restored to the position of show cause notice issued u/s 148A(b) with consequential directions. Assessee appeal allowed.
AI TextQuick Glance (AI)Headnote
Employee PF and ESIC contributions paid after statutory due dates but before IT return filing are not deductible
Issues involved: Late payment of PF and ESIC contribution by the assessee but deposited before the due date of filing of the Income Tax Return and its disallowance in the intimation passed u/s. 143(1).
Summary of Judgment:
Issue 1: Disallowance of PF and ESIC contribution in the intimation u/s. 143(1)
The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, regarding the late payment of PF and ESIC contribution by the assessee. The main contention was whether the disallowance made under section 36(1)(va) in the intimation u/s. 143(1) was justified, even though the payments were made before the due date of filing the Income Tax Return for the Assessment Year 2018-19.
Details:
- The assessee, an ex-army person and Proprietor of Security Agency Services, declared total income of Rs. 43,80,110/- for A.Y. 2018-19, with a disallowance of Rs. 36,76,118/- for late payment of PF and ESIC.
- The NFAC confirmed the disallowance made under section 36(1)(va) and dismissed the appeal.
- The assessee contended that the disallowance was unjustified and debatable, citing a Co-ordinate Bench Decision and Supreme Court judgment in a similar case.
- The Revenue supported the order passed by the Lower Authorities.
Judgment:
- The ITAT, after considering various judicial rulings and the legal provision of section 143(1) of the Act, upheld the disallowance of employees' contributions to PF / ESI paid after the due date under PF / ESI laws.
- The ITAT referred to the decision of the Hon'ble Supreme Court in Checkmate Services Private Ltd and Harrisons Malayalam Ltd, among others, to support the disallowance.
- The ITAT dismissed the assessee's appeal, concluding that the revenue authorities were correct in disallowing the late payments of PF and ESIC contributions.
Conclusion:
The appeal filed by the Assessee was dismissed, and the action of the lower authorities in disallowing the late payments of PF and ESIC contributions was upheld.
Separate Judgment by the Co-ordinate Bench of ITAT, Indore:
The Co-ordinate Bench of ITAT, Indore, in a similar case involving M/s Prashanti Engineering Works (P) Ltd. Vs. ADIT, CPC, Bangalore, held that the disallowance of contributions under section 36(1)(va) in the intimation u/s. 143(1) was justified. The decision was based on the latest Supreme Court judgment in Checkmate Services Private Ltd and other relevant legal provisions.
Note: The judgment highlighted the importance of timely payment of PF and ESIC contributions and the implications of late payments on the allowable deductions for businesses.
Employee PF and ESIC contributions paid after statutory due dates but before IT return filing are not deductible
ITAT Indore upheld disallowance of PF and ESIC contributions paid after statutory due dates but before income tax return filing deadline. Following SC precedent in Checkmate Services and coordinate bench decision in Prashanti Engineering Works, the tribunal ruled that employee contributions to PF/ESI paid beyond statutory due dates are not allowable deductions for computing business taxable income. Revenue authorities correctly disallowed these late payments despite being made before IT return due date. Appeal dismissed against assessee.
Late payment of PF and ESIC contribution but deposited before the due date of filing of the Income Tax Return - intimation passed u/s. 143(1) - HELD THAT:- We note that identical issue is recently decided against assessee by the Co-ordinate Bench in M/s Prashanti Engineering Works (P) Ltd. [2023 (3) TMI 729 - ITAT INDORE] after taking into account the latest decision of Hon’ble Supreme Court in Checkmate Services (P.) Ltd. [2022 (10) TMI 617 - SUPREME COURT] employees’ contributions to PF / ESI paid after due date under PF / ESI laws is not an allowable deduction in computing taxable income of business and the revenue-authorities have rightly disallowed the same. Therefore, we uphold the action of lower-authorities in making/confirming the impugned disallowance. Decided against assessee.
AI TextQuick Glance (AI)Headnote
Tax Penalty Upheld for Loan Repayment Violation
Issues involved:
The judgment involves the sustainability of the penalty imposed by the JCIT under Sec.271E of the Income-tax Act, 1961 for assessment year 2015-16.
Controversy:
The controversy in the present appeal pertains to the penalty imposed by the JCIT under Sec.271E of the Act for cash repayment of loans in contravention of the prescribed modes under section 269T of the Act.
Assessee's Arguments:
The assessee contended that she made cash repayments as per the financers' instructions and due to ignorance of section 269T provisions, thus invoking section 273B for reasonable cause exemption from penalty.
JCIT's Decision:
The JCIT rejected the assessee's contentions, emphasizing that the financers' instructions did not justify non-compliance with section 269T. The JCIT also noted the presence of a Chartered Accountant, dismissing the claim of ignorance of the law.
Analysis:
Upon review, the Tribunal found that the assessee repaid loans totaling Rs.6,71,939 in cash, contrary to section 269T's prescribed modes. The Tribunal highlighted the statutory provisions requiring repayment through specific methods, including account payee cheques, bank drafts, or electronic systems.
Assessee's Ignorance:
The Tribunal dismissed the assessee's plea of ignorance, citing her engagement of a Chartered Accountant and the established legal principle that ignorance of the law is not a valid defense.
Comparison with Previous Case:
The Tribunal rejected the assessee's reliance on a relative's case where a penalty was vacated, emphasizing the need to assess each case independently.
Decision:
Ultimately, the Tribunal upheld the penalty imposed by the JCIT under Sec.271E, as the assessee failed to comply with section 269T provisions and did not provide a valid reason for deviating from the prescribed repayment methods.
Conclusion:
Consequently, the appeal filed by the assessee was dismissed by the Tribunal, affirming the penalty of Rs.6,71,939 imposed by the JCIT under Sec.271E of the Income-tax Act, 1961.
Tax Penalty Upheld for Loan Repayment Violation
The Tribunal upheld the penalty imposed by the JCIT under Sec.271E of the Income-tax Act, 1961, as the assessee failed to comply with section 269T provisions regarding loan repayments and did not provide a valid reason for deviating from the prescribed repayment methods. The appeal was dismissed, affirming the penalty of Rs.6,71,939.
Penalty u/s. 271E - non mandate of provisions of section 269T - HELD THAT:- We are of the considered view that even if the financers on account of the poor track record of the assessee were not ready and willing to receive the monthly installments towards repayment of loans from her through cheques, then she could have safely made the said repayments by way of account payee bank drafts or electronic clearing system through his bank account or any other prescribed electronic mode as provided in Rule 6ABBA of the I.T. Rules, 1962. We are unable to persuade ourselves to subscribe to the explanation of the assessee that as the financers were not ready to receive the repayment of loans from her vide account payee cheques, therefore, for the said reason she was compelled to make the said payments in cash.
Also we do not find any substance in the claim of the assessee that she was unaware of the provisions of section 269T - It is a matter of fact borne from record that the assessee at the relevant point of time was availing the services of a Chartered Accountant and had got her accounts for the year under consideration audited from him.
Considering the aforesaid factual position, and independent of the settled position of law that an assessee cannot be allowed to plead ignorance of law, we are even otherwise of the considered view that there is no substance and merit in the claim of the assessee that she was oblivion of the modes and manner for repayment of loans as prescribed u/s 269T of the Act.
Adverting to the support drawn by the assessee from the fact that a similar penalty that was imposed in the case of her nephew, viz Shri Ajay Gill had been vacated by the CIT(A), NFAC, we are of a strong conviction that as the facts involved in every case stand on their independent footing, therefore, her aforesaid claim would be of no assistance.
As the assessee had not only failed to comply with the provisions of section 269T therein rendering her liable for imposition of penalty u/s. 271E but had also failed to come forth with any reasonable cause which had prevented her to make repayment of the monthly installments of her outstanding loans in a manner other than that prescribed under law, therefore, finding no infirmity in the penalty imposed by the JCIT u/s. 271E of the Act, uphold the same. Appeal filed by the assessee is dismissed.
AI TextQuick Glance (AI)Headnote
Tax Appeal Reopened: Tribunal Identifies Record Mistake, Directs Rehearing of Unresolved Ground No.4 Under Section 254(2)
Summary:In Miscellaneous Application filed by the assessee seeking rectification under section 254(2) of the Income Tax Act, ITAT Delhi observed that Ground No.4 and its sub grounds raised in Appeal No. 6571/DEL/2016 for A.Y. 2012-13 were reproduced but "not adjudicated" in the Tribunal's order dated 11.05.2018. The Tribunal held that such non-adjudication constitutes a "mistake apparent from record" warranting recall of the order. Accordingly, the order was recalled "for a limited purpose of adjudicating Ground No.4 and sub grounds," and the Registry was directed to list the appeal for hearing. The Miscellaneous Application was allowed.
Tax Appeal Reopened: Tribunal Identifies Record Mistake, Directs Rehearing of Unresolved Ground No.4 Under Section 254(2)
ITAT Delhi recalled its previous order in a tax appeal due to non-adjudication of Ground No.4 and sub-grounds. The tribunal found a mistake apparent from the record and directed the registry to list the appeal for hearing, allowing the miscellaneous application for rectification under section 254(2) of the Income Tax Act.
Rectification of mistakes - non adjudication of a ground - HELD THAT:- We find that assessee had raised ground No.4 and sub grounds but the same was not adjudicated by Tribunal in the order dated 11.05.2018. We therefore find force in the argument of Learned AR. We therefore recall the order [2018 (5) TMI 848 - ITAT DELHI] for a limited purpose of adjudicating Ground No.4 and sub grounds. We accordingly direct the Registry to fix the aforesaid appeal in regular course for hearing.
AI TextQuick Glance (AI)Headnote
Appeal Dismissed Upholding Income Addition under Section 69A
Issues Involved:
The appeal challenges the assessment order passed by the Ld. AO, the addition of Rs. 3,32,313/- to the income of the assessee, and the application of u/s 69A of the Act in making the said addition.
Summary:
1. Assessment Order Challenge:
The appeal was directed against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2017-18. The assessee contended that the assessment order passed by the Ld. AO was illegal and bad in law. The Ld. CIT(A) was criticized for not quashing the assessment order despite finding that it lacked a speaking order and rejected submissions with casual remarks. The appellant sought to add, modify, or delete grounds of appeal.
2. Addition of Rs. 3,32,313/-:
The addition of Rs. 3,32,313/- to the income of the assessee was challenged on various grounds. The assessee argued that the addition was based on presumptions without incriminating evidence. It was contended that the amount did not represent unexplained money but was expenditure made by the assessee. The source of the expenditure was explained by the assessee, and it was claimed that the addition was not tenable under the law and facts of the case.
3. Application of u/s 69A of the Act:
The addition of Rs. 3,32,313/- was made u/s 69A of the Act, which was further contested by the assessee. It was argued that the amount did not represent unexplained money, bullion, jewelry, or valuable article but was expenditure made by the assessee. The assessee maintained that the source of the expenditure was duly explained, rendering the addition under u/s 69A not tenable.
The facts of the case revealed that a search & seizure operation was conducted by the Revenue at the assessee's residential premises. The Assessing Officer made an addition in respect of investments made in cash, leading to the current dispute. The counsel for the assessee argued that all evidence related to the expenditure was provided, and there was no incriminating material. The CIT(DR) supported the authorities' orders, emphasizing that the investments were made in cash without a clear source explanation.
The Tribunal observed that the appellant failed to establish the source of the cash expenses, leading to the addition. The CIT(Appeals) partly allowed the appeal, restricting the addition to Rs. 3,32,313/-. The Tribunal upheld the decision, noting that the appellant did not provide a valid explanation for the expenditure. The appeal was dismissed, affirming the order of the CIT(Appeals.
The judgment was pronounced on 27th April 2023 by the Appellate Tribunal ITAT DELHI.
Appeal Dismissed Upholding Income Addition under Section 69A
The appeal challenged the assessment order, addition of Rs. 3,32,313 to the assessee's income, and application of section 69A of the Act. Despite the assessee's arguments that the addition was based on presumptions without incriminating evidence and that the expenditure was explained, the Tribunal upheld the decision, limiting the addition to Rs. 3,32,313. The appeal was dismissed, affirming the Commissioner of Income-tax (Appeals) order.
Unexplained Investment made in cash - HELD THAT:- Assessee failed to establish the source of cash. Assessee did not file any representation before the Revenue authorities regarding typographical error. It is evident from the records that the CIT(Appeals) has given a finding about bank withdrawal and and deleted part of addition after considering the same. Thereby, he partly allowed the appeal of the assessee.
It is not the case where the learned CIT(Appeals) sustained the addition without considering the material available on record. Therefore, looking to the facts of the present case at this stage the assessee has not made out any case for deletion of impugned addition, hence no interference is called for in the order of learned CIT ( Appeals ) . Grounds raised in this appeal are dismissed.
AI TextQuick Glance (AI)Headnote
Reassessment orders under Section 148A(d) upheld for share buyout proceeds and interest taxation timing differences
Issues involved: Challenge to notices u/s 148A(b) of Income-Tax Act, 1961, taxability of amount received for buyout of shares, liability to tax interest income, interpretation of Section 56(2)(x), adequacy of notice content.
Judgment Summary:
Challenge to Notices u/s 148A(b): The petitioner challenged notices u/s 148A(b) of the Income-Tax Act, 1961, dated 01.03.2023 and 21.03.2023, along with an order u/s 148(A)(d) dated 06.04.2023 and a notice u/s 148 dated 06.04.2023. The main grounds of challenge included the tax liability on the buyout of shares and interest income, alleging lack of tax liability and inadequacy of notice content.
Taxability of Amount Received for Buyout of Shares: The petitioner, a private limited company, received a sum of Rs. 18,62,03,348/- for the buyout of shares as per the order of the Apex Court. The taxability of this amount was in question, with the petitioner proposing to offer the interest income for AY 2023-24. The assessing authority contended that the amount should not be treated as exempt income under the Income-Tax Act.
Liability to Tax Interest Income: The assessing authority believed that the interest income on the sum received should be taxed in AY 2019-20 due to accrual timing, despite the petitioner's argument of delayed receipt. The officer's view was that the interest must be taxed in the relevant year based on the order of the Apex Court.
Interpretation of Section 56(2)(x): The petitioner argued that Section 56(2)(x) did not apply as the consideration for the amount received was in the form of shares, not money without consideration. The interest income was proposed to be taxed in AY 2023-24.
Adequacy of Notice Content: The assessing authority raised specific taxability issues in the notice under Section 148A(b), outlining the alleged escapement of income and interest tax liability. The petitioner's claim of insufficient notice content was deemed meritless, as the notice sufficiently highlighted the proposed reassessment grounds.
Conclusion: The High Court dismissed the writ petition, stating that the legal issues raised required detailed consideration by the assessing authority. The judgment reiterated the similarity of the present case to a previous one and upheld the dismissal of the writ petitions.
Note: The judgment was delivered by the Hon'ble Dr. Justice Anita Sumanth of the Madras High Court.
Reassessment orders under Section 148A(d) upheld for share buyout proceeds and interest taxation timing differences
The Madras HC dismissed writ petitions challenging reassessment orders under Section 148A(d) regarding taxability of share buyout proceeds and interest received thereon. The court held that the assessing authority correctly concluded no capital gains arose from the share buyout transaction per Apex Court order, as it was neither an inter vivos transfer nor deemed dividend under Section 2(22)(e). However, the court found no issue with the authority's prima facie conclusion that income escaped assessment. The interest liability was deemed a timing difference properly taxable in AY 2019-20 based on accrual principles when the Apex Court order was passed. The court rejected petitioner's argument that taxability wasn't adequately specified in the showcause notice, noting Section 148A(b) notices need only broadly outline reassessment basis.
Validity of reassessment orders u/s 148A(d) - taxability of the buyout of shares and interest received on the aforesaid amount - HELD THAT:- Identical challenge in M/s. Satluj Credit & Holdings Private Limited rep. By its Director Prasanna Natarajan Versus Income Tax Officer, Corporate Ward 6 (1) , Chennai, The Principal Commissioner of Income Tax, Chennai
[2023 (5) TMI 224 - MADRAS HIGH COURT] have dismissed the Writ Petition as held that assessing authority has rightly concluded that there is no capital gains that arises from the transaction since the entire transaction was a buyout of shares by virtue of order of the Apex Court. The officer, in this regard refers to the statement of the Apex Court that the transaction 'does not amount to shares being transferred inter vivos, nor can the payment for the shares be treated as deemed dividend'. Thus the clear inference that the officer has arrived at, is that there can be no instance of capital gain tax nor any levy under Section 2 (22) (e) of the Act dealing with deemed
As pointed out that the receipt itself has not been held to be exempt, we see nothing untoward in the assessing authority having come to the aforesaid prima facie conclusion under the impugned order that there is escapement of income. This legal issue is to be decided by the assessing authority after detailed consideration of the petitioner's arguments in assessment and the matter is preliminary at this juncture.
On the liability to interest on the sum it is a timing difference, and the officer prima facie believes that the interest must be taxed in AY 2019-20 relatable to the year when the order was passed by the Apex Court on the ground of accrual. Though the petitioner would suggest that the receipt had been delayed and it only after a few years that the amounts had been received, such submission involves the appreciation of facts and are best considered by the authorities.
The argument of petitioner to the effect that the taxability of the receipt has not been put to it in the showcause notice is also devoid of merit, since the assessing authority has raised these issues specifically in the penultimate paragraph of the Annexure to notice under Section 148A(b). A notice under Section 148A(b) is not expected to be as detailed as order of assessment and it would suffice that the issue on the basis of which the reassessment is proposed is outlined broadly therein. It is for the assessee/petitioner to respond on all aspects of the matter and seek clarifications, where it so requires.
In light of the aforesaid submission, the same order is taken to be passed in these matters as well.These Writ Petitions are dismissed.
AI TextQuick Glance (AI)Headnote
Interest under Land Acquisition Act section 28 not taxable as income from other sources under section 56(2)(viii)
Issues Involved:
1. Taxability of interest income received under Section 28 of the Land Acquisition Act.
2. Applicability of Section 56(2)(viii) of the Income Tax Act, 1961.
Summary:
Issue 1: Taxability of Interest Income Received Under Section 28 of the Land Acquisition Act
The core issue in this appeal is whether the interest income of Rs.1,62,24,632/- received by the assessee under Section 28 of the Land Acquisition Act, 1894, is taxable as "income from other sources" under Section 56(2)(viii) of the Income Tax Act, 1961. The assessee argued that this interest income is part of the land acquisition compensation and should not be taxable, citing the Supreme Court's decision in Ghanshyam (HUF) Vs. CIT [2009] 315 ITR 1 (SC).
The Revenue, however, relied on the tribunal's coordinate bench's order in Basweshwar Mallikarjun Bidwe Vs. ITO, which upheld the taxability of such interest income under Section 56(2)(viii). The tribunal noted that post the Ghanshyam judgment, a statutory amendment via the Finance (No.2) Act, 2009, effective from 01-04-2010, explicitly provided that interest received on compensation or enhanced compensation is chargeable to income-tax under "income from other sources."
Issue 2: Applicability of Section 56(2)(viii) of the Income Tax Act, 1961
The tribunal examined various judicial precedents, including the Punjab & Haryana High Court's decision in Manjet Singh (HUF) Karta Manjeet Singh Vs. Union of India, which upheld the taxability of interest under Section 28 of the Land Acquisition Act as per Section 56(2)(viii). The tribunal also considered the Bombay High Court's decision in Shivajirao S/o Dnyanoba Ghanwat & Ors. VS. The State of Maharashtra & Ors., which supported the taxability of such interest income.
However, the tribunal acknowledged conflicting views within the jurisdictional High Court benches. The Bombay bench held that such interest is not taxable under Section 56(2)(viii), whereas the Aurangabad bench took a contrary position.
Conclusion:
Given the conflicting judgments within the jurisdictional High Court, the tribunal decided to follow the Bombay bench's decision, which is favorable to the assessee. It held that the interest income received under Section 28 of the Land Acquisition Act is not taxable under Section 56(2)(viii) of the Income Tax Act. The tribunal allowed the assessee's appeal, stating that the decision of the Bombay bench of the jurisdictional High Court would prevail in this case.
Final Order:
The assessee's appeal for Assessment Year 2015-16 is allowed, and the interest income received under Section 28 of the Land Acquisition Act is not taxable under Section 56(2)(viii) of the Income Tax Act. The order was pronounced in the open Court on 27th April, 2023.
Interest under Land Acquisition Act section 28 not taxable as income from other sources under section 56(2)(viii)
ITAT Pune held that interest received under section 28 of the Land Acquisition Act, 1894 is not taxable under section 56(2)(viii) as income from other sources. The tribunal followed the Bombay HC decision in Shri Rupesh Rashmikant Shah case, which held such interest is part of land acquisition compensation and not taxable, over the conflicting Aurangabad HC decision in Shivajirao case. The tribunal determined that Bombay HC's territorial jurisdiction applied since the assessee, land, and assessing officer fell within its notified jurisdiction. The appeal was decided in favor of the assessee.
Income from Other Sources u/s 56(2) - interest received u/Sec. 28 of the Land Acquisition Act, 1894 - assessee’s case before us is that such an interest income is part of the land acquisition compensation itself and not taxable - HELD THAT:- It transpires that the instant issue of taxability of the assessee’s interest income received under section 28 of the Act is covered in assessee’s favour as per the hon’ble high court’s Bombay bench Shri Rupesh Rashmikant Shah Versus Union of India & Ors. [2019 (8) TMI 518 - BOMBAY HIGH COURT] holding that the same is not taxable under section 56(2)(viii) of the Act as against the Revenue’s contentions that the Aurangabad bench of the very hon’ble jurisdictional high court has taken a divergent view against the taxpayer in Shivajirao and Others Vs. State [2013 (8) TMI 1160 - BOMBAY HIGH COURT]
Faced with the situation, we are of the opinion that it is the Bombay and not Aurangabad bench of the hon’ble jurisdictional high court whose decision would prevail in the given facts and circumstances as the assessee, his land/capital asset forming subject matter of compulsory acquisition as well as “situs” of the Assessing Officer who has framed assessment before us are covered within its territorial jurisdiction notified from time to time. We thus quote PCIT Vs. ABC Paper Limited [2022 (8) TMI 863 - SUPREME COURT] and decide the instant sole substantive ground as well as the main appeal is assessee’s favour.
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Tribunal Confirms Rs. 14 Lakh as Unexplained Cash Credits Due to Lack of Documentation, Dismisses Appeal.
Issues involved:
The dispute in the present appeal is confined to the addition made of Rs. 14,00,000 under Section 68 of the Income-Tax Act, 1961.
Identity of the Creditor, Genuineness of the Loan Transaction, and Creditworthiness of the Lender:
The Assessing Officer noticed that the assessee credited a loan of Rs. 14,00,000 from M/s. Gee Wire Pvt. Ltd. The assessee failed to prove the identity of the creditor, the genuineness of the loan transaction, and the creditworthiness of the lender by furnishing necessary documentary evidences. Despite the assessee's explanation that the loan was taken to procure fixed assets/capital goods, the Assessing Officer found the reply unconvincing due to the absence of supporting documents. The name of the lender was struck off by the Registrar of Companies (ROC) and no returns were available on the Ministry of Corporate Affairs (MCA) site. Consequently, the unsecured loan amount was added as unexplained cash credits under Section 68 of the Act. The contention that non-repayment of the loan would lead to cessation of liability was rejected, as doubts persisted regarding the genuineness of the transaction and the creditworthiness of the creditor.
Decision:
The Appellate Tribunal upheld the addition under Section 68 of the Act, as the assessee failed to sufficiently discharge its obligation to establish the identity of the creditor, the genuineness of the loan transaction, and the creditworthiness of the lender. The absence of PAN details, address proof, loan confirmation, and ITR copy of the lender, coupled with the removal of the lender's name from ROC records, raised doubts about the existence of the lender company. The Tribunal deemed the unsecured loan as unexplained due to the lack of evidence. The alternative argument regarding cessation of liability was deemed untenable, given the doubts surrounding the transaction's legitimacy and the lender's creditworthiness. Consequently, the appeal was dismissed, and the decision of the departmental authorities was upheld.
Tribunal Confirms Rs. 14 Lakh as Unexplained Cash Credits Due to Lack of Documentation, Dismisses Appeal.
The Appellate Tribunal upheld the addition of Rs. 14,00,000 under Section 68 of the Income-Tax Act, 1961, as unexplained cash credits. The assessee failed to establish the identity, genuineness, and creditworthiness of the lender, M/s. Gee Wire Pvt. Ltd., due to the absence of necessary documentation such as PAN details, address proof, loan confirmation, and ITR copy. The lender's removal from the Registrar of Companies records further raised doubts. The Tribunal dismissed the appeal, affirming the decision of the departmental authorities and rejecting the argument regarding the cessation of liability.
Addition u/s 68 - identity of the creditor, the genuineness of the loan transaction and the creditworthiness of the creditor by furnishing documentary evidences not proved - HELD THAT:- Undisputedly, the assessee has failed to furnish PAN details, address proof, loan confirmation, ITR copy of the lender. It is also a fact that the name of the concerned lender has been struck off in the records of ROC. Therefore, there is serious doubt regarding the existence of the lender company. The assessee has also failed to prove the creditworthiness of the lender coupled with genuineness of the transaction. That being the case, the unsecured loan availed of Rs. 14,00,000 remains unexplained. Therefore, the addition made under Section 68 of the Act, in my view, is justified.
As regards, the alternative contention of the assessee that nonrepayment of loan will amount to cessation of liability, find the said submission preposterous. Once, there is serious doubt regarding the genuineness of the loan transaction and creditworthiness of the creditor, it is not understood how it can be treated as cessation of liability when the liability itself is non-genuine. Assessee appeal dismissed.
AI TextQuick Glance (AI)Headnote
Telescoping of undisclosed income against excess gold stock upheld, demonetization cash deposits taxed under section 115BBE with modifications allowed
Issues Involved:
1. Deletion of addition on account of 5% profit on undisclosed turnover.
2. Restriction of addition on account of cash deposited during demonetization.
3. Taxation of investment in undisclosed stock as business income.
4. Addition on account of excess stock found during survey proceedings.
5. Estimation of profit on undisclosed turnover for various assessment years.
Summary of Judgment:
Issue 1: Deletion of Addition on Account of 5% Profit on Undisclosed Turnover
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2.85 crores made by the Assessing Officer (AO) on account of 5% profit on undisclosed turnover. The CIT(A) observed that the income earned from undisclosed sales was invested in stock of gold bars, thus taxing both the source of income and its application would amount to double taxation. The Tribunal agreed with the CIT(A) that the assessee is entitled to the benefit of telescoping, relying on the jurisdictional High Court's decision in PCIT vs Aliasgar Anwarali Varteji.
Issue 2: Restriction of Addition on Account of Cash Deposited During Demonetization
The Tribunal upheld the CIT(A)'s decision to restrict the addition of Rs. 7.12 crores to Rs. 35,33,091/- on account of cash deposited during the demonetization period. The CIT(A) found that the AO did not properly consider the cash sales and recovery from debtors. The CIT(A) directed the AO to tax the balance amount of Rs. 35,33,091/- under section 68 of the Act, as this amount was not generated from actual sales of jewellery or bullion.
Issue 3: Taxation of Investment in Undisclosed Stock as Business Income
The Tribunal held that the excess stock found during the survey proceedings should be treated as business income and not under section 115BBE of the Act. The Tribunal directed the AO to tax the excess stock/sale at the rate of 2.5% (normal profit rate of the assessee) under the head business income, as the excess stock pertains to the assessee's business.
Issue 4: Addition on Account of Excess Stock Found During Survey Proceedings
The Tribunal directed the AO to rework the book stock after considering the CIT(A)'s findings that sales worth Rs. 6,49,65,135/- are genuine and the balance sales of Rs. 5,61,80,827/- are bogus. The CIT(A) allowed the issue of excess stock of Rs. 4,67,19,066/- partly for statistical purposes. The Tribunal also noted that the assessee is entitled to telescoping of the previous assessment years' profits against the excess stock found.
Issue 5: Estimation of Profit on Undisclosed Turnover for Various Assessment Years
The Tribunal upheld the CIT(A)'s decision to estimate the net profit at the rate of 2.5% on the suppressed sale of jewellery and 0.2% on suppressed sale of bullion for the assessment years 2014-15, 2015-16, and 2016-17. The CIT(A) found that the AO's estimation of 5% net profit was on the higher side and directed the AO to apply separate rates for bullion and jewellery.
Conclusion:
- Appeals filed by the assessee for AYs 2013-14, 2014-15, 2015-16, 2016-17, and 2017-18 are allowed.
- Appeals filed by the Revenue for AYs 2015-16 and 2017-18 are dismissed.
Order pronounced on 27/04/2023 in the open court.
Telescoping of undisclosed income against excess gold stock upheld, demonetization cash deposits taxed under section 115BBE with modifications allowed
ITAT Surat upheld CIT(A)'s order directing telescoping of income estimated on undisclosed turnover against excess stock of gold jewellery and bars found during survey. For cash deposits during demonetization period, CIT(A) sustained addition of Rs. 35,33,091 under section 115BBE after allowing relief of Rs. 6,76,66,909. ITAT modified this, directing taxation of excess stock as business income at 2.5% profit rate instead of under section 115BBE. Court approved CIT(A)'s profit estimation at 2.5% for jewellery and 0.2% for bullion sales, and allowed telescoping of previous assessment years' additions. Revenue's appeals dismissed.
Estimation of income on undisclosed sales - declaration made by the assessee during the course of survey - Income estimated on undisclosed turnover against the undisclosed excess stock of gold jewellery and bars found during the course of survey - HELD THAT:- As application of income earned is found in excess stock found and also in cash deposited in the bank account. The source of earning is from profit earned on undisclosed turnover and application is in stock and cash deposited in Bank.
As cash deposited in bank is being adjudicated separated, the assessing officer is directed to telescope the gross profit estimated on turnover outside the books of accounts against the excess stock found.
CIT(A) directed the assessing officer to give the telescoping effect of income estimated on undisclosed turnover against the undisclosed excess stock of gold jewellery and bars found during the course of survey. Hence separate addition made by the assessing officer was deleted by CIT(A). We have gone through the above findings of ld CIT(A) and noted that there is no infirmity in the order passed by CIT(A). The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A) and dismiss the ground nos. 1 and 2 raised by the Revenue.
Addition on account of cash deposited during the demonetization period - assessee did not explain the source of cash deposited - HELD THAT:- It is not a case where turnover outside the books of accounts was detected. The plea of the assessee could have been accepted in the later case and not in the former case as the assessee has deposited the entire cash in the bank account. Therefore, the alternative plea of the assessee was rejected.
In view of the above facts, the ld CIT(A) observed that the addition on cash deposit sustained is Rs. 61,80,827/- by the cash in hand of Rs. 26,47,736/-. The net addition sustained was at Rs. 35,33,091/-. The assessee got relief of Rs. 6,76,66,909/- (6,23,35,144 + 26,29,991+26,47,736).
CIT(A) directed the assessing officer to tax the said amount of Rs. 35,33,091/- (7,12,00,000- Rs. 6,76,66,909) u/s 68 of the Act as same was generated not from actual sale of jewellery or bullion, therefore, ld CIT(A) held the claim of sale as bogus as evidenced from entries in computer. Accordingly, the ld CIT(A) directed the assessing officer to tax the amount of Rs. 35,33,091/- as per the provisions of section 115BBE of the Act. We do not find any infirmity in the order of Ld. CIT(A), hence ground No. 3 of Revenue is dismissed.
Investment in undisclosed stock - business income OR undisclosed investment - HELD THAT:- The source of income was explained and is apparently established and hence section 115BBE of the Act, is not applicable for such business receipts. The provisions of Sections 68 and 69 are not applicable for trading transactions like deposit of cash out of cash sales and excess closing stock. For that reliance can be placed on the judgment of case of Shilpa Dyeing & Printing Mills Ltd [2015 (7) TMI 691 - GUJARAT HIGH COURT] Therefore, we direct the AO to tax the excess stock/sale, if any, under the head business income, (not u/s 115BBE) and amount of Rs. 35,33,091/- should be taxed at the rate of 2.5% (normal profit rate of assessee).
Quantification of excess stock - credit of disclosures during the course of survey and subsequently in the return filed - In assessment year 2017-18, when the survey was conducted, then assessing officer reopened the previous assessment years namely, assessment years viz: 2013-14, 2014-15, 2015-16 and 2016-17 and re-estimated the profit on turnover at the rate of 5%. On appeal, ld CIT(A) reduced profit to 2.5%. We note that assessee has declared cash sales/PMGKY Scheme (sales bill reversed-So Stock increased) at Rs. 5,00,00,000/-, hence the assessee is entitled for telescoping of these previous assessment years which were completed after assessment year 2017-18. Therefore, we direct the assessing officer to grant the telescoping of these previous assessment years viz: 2013-14, 2014-15, 2015-16 and 2016-17.
Estimation of NP - Suppressed sale of jewellery and suppressed sale of bullion - HELD THAT:- CIT(A) noted that compared to the average net profit disclosed for these preceeding assessment years, the 5% net profit estimated by the AO is on a higher side. Hence, if the net profit is taken at 2.5% of the unrecorded/suppressed turnover of jewellery which is about 0.87% above the average net profit of 1.63% would meet the ends of justice. Similarly, for bullion the assessee has the separate record of only A.Y 2014-15 and 2015-16 where the average net profit is a loss. In absence of the separate details for bullion for all the proceeding assessment years, the prevalent market rate of 0.2% on sale on bullion would be the appropriate net profit rate. Accordingly, ld CIT(A) directed the assessing officer to estimate the net profit at the rate of 2.5% on the suppressed sale of jewellery and 0.2% on suppressed sale of bullion.
This way, ld CIT(A) allowed the appeal of the assessee for all these 3 assessment years partly. We do not find any infirmity in the above conclusion reached by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
AI TextQuick Glance (AI)Headnote
Tribunal Adjusts Corporate Guarantee Commission, Allows R&D Deductions Under Section 35(2AB), Upholds 6% Notional Interest on Delays. &D
Issues Involved:
1. Corporate Guarantee Commission
2. Interest on Receivables from Associated Enterprises
3. Disallowance of Weighted Deduction under Section 35(2AB) of the Income Tax Act
Summary:
1. Corporate Guarantee Commission:
The assessee contested the addition of Rs. 10,93,47,091/- for alleged shortfall in corporate guarantee fees, arguing that the corporate guarantee was a shareholder service and should not be treated as an international transaction. The DRP, however, considered it an international transaction and benchmarked the guarantee commission at 1%. The Tribunal partially allowed the assessee's appeal, restricting the addition to 0.5% on the amount guaranteed, following precedents from various Tribunals.
2. Interest on Receivables from Associated Enterprises:
The assessee argued against the addition of Rs. 3,34,24,193/- for notional interest on delayed receivables, stating that trade receivables are part of normal business and should not be treated as loans. The DRP and lower authorities treated the delayed receivables as a separate international transaction and benchmarked interest using SBI short-term deposit rates. The Tribunal, following its own decision in a similar case, directed the AO to compute notional interest at 6% on receivables beyond 60 days.
3. Disallowance of Weighted Deduction under Section 35(2AB):
The AO disallowed weighted deduction on clinical trials and other R&D expenditures not quantified in Form 3CL. The assessee argued that clinical trials are an integral part of R&D and eligible for deduction. The Tribunal, following its earlier decisions in the assessee's own case, allowed the weighted deduction for clinical trials and other R&D expenditures, as the necessary approvals were in place.
Conclusion:
The Tribunal's order resulted in partial relief for the assessee by adjusting the corporate guarantee commission to 0.5% and allowing the weighted deduction for R&D expenditures. However, it upheld the notional interest on delayed receivables at 6%.
Tribunal Adjusts Corporate Guarantee Commission, Allows R&D Deductions Under Section 35(2AB), Upholds 6% Notional Interest on Delays. &D
The Tribunal provided partial relief to the assessee by adjusting the corporate guarantee commission to 0.5% of the amount guaranteed. It also allowed the weighted deduction for clinical trials and other R&D expenditures under Section 35(2AB), as the necessary approvals were in place. However, the Tribunal upheld the imposition of notional interest on delayed receivables, directing the AO to compute it at 6% for receivables beyond 60 days.
TP Adjustment - determining the ALP of corporate guarantee commission - whether the corporate bank guarantee given by the assessee on behalf of its AE is an international transaction or not? - HELD THAT:- The issue of whether the corporate bank guarantee given by the assessee on behalf of its AE is an international transaction or not, is no more res integra, as the explanation to section 92B of the Act itself had made it abundantly clear that if the assessee is providing the capital financing, including any type of long term or short term borrowing, lending or “guarantee” , purchase or sale etc., then such transaction shall be considered as international transaction. Undoubtedly, the assessee has given Corporate Guarantee on behalf of its AE, which fact has not been disputed by the assessee either before the TPO or before the DRP and, therefore, we are of the opinion that the corporate guarantee given by the assessee is an international transaction and, therefore, the same has rightly been held so by the lower authorities.
Whether the corporate guarantee estimated by the DRP to the tune of 1% on the amount guaranteed as a corporate guarantee commission as against 0.10% was justified or not? - In our view, no third party would provide similar type of services/corporate guarantee on behalf of its AE and expose itself to the risk of giving the corporate guarantee. Therefore, the charges paid by the assessee to SBI cannot be compared for the purpose of determining the ALP of corporate guarantee commission. The Co-ordinate Bench in the case of Vivimed Labs [2022 (4) TMI 1514 - ITAT HYDERABAD] had adjudicated corporate guarantee commission @ 0.5% qua the extent of the amount of the assessee’s corporate guarantee actually utilised in these four assessment years. Thereafter, similar view had been taken by various Tribunals restricting the addition to 0.5% of the amount guaranteed as corporate guarantee commission. Thus we partly allow the ground of the assessee and restrict the addition to the tune of 0.5% on the amount guaranteed as corporate guarantee commission.
Interest on Receivables - assessee had outstanding receivables during the year, which arise in the usual course of business of the assessee on sale of its products and being trade transactions, the assessee had extended normal credit for payment by trade debtors -directions of DRP to the Assessing Officer to charge of interest on so-called delayed realisations from AE debtors and recompute the TP adjustment - HELD THAT:- As relying on own case [2023 (4) TMI 521 - ITAT HYDERABAD] we direct the Assessing Officer to determine the ALP and compute the same by adding notional interest @ 6% on the receivable beyond a period of 60 days.
Disallowance of weighted deduction claimed u/s 35(2AB) of the IT Act on R&D expenditure - HELD THAT:- Admittedly the tribunal in its earlier order had decided this identical issue in favour of the assessee [2018 (7) TMI 1867 - ITAT HYDERABAD] thus respectfully following case of assessee for the earlier years and more particularly when the approval in Form 3CL had been granted by the DSR (requisite authority) approving the expenditure for clinical trial expenses incurred outside approved R & D facilities, the assessee is entitled to weighted deduction u/s 35(2)(AB) and accordingly, the grounds raised by the assessee are allowed.
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Appeal partially allowed due to time-barred TPO's order, rendering subsequent assessment orders invalid.
Issues Involved:
1. Application of transfer pricing (TP) provisions.
2. Re-computation of arm's length price for specific international transactions.
3. Calculation of surplus income for life insurance business.
4. Tax rate applicability for life insurance companies.
5. Set off of brought forward losses.
6. Deduction towards transfer from linked fund.
7. Exemption under section 10(34) for dividend income.
8. Penalty proceedings.
Summary:
1. Application of Transfer Pricing (TP) Provisions:
The Hon'ble CIT(A)/AO/TPO erred in applying TP provisions to transactions undertaken by the Appellant (a life insurance company) and making a TP adjustment to the Appellant's reported taxable surplus, as section 44 of the Income-tax Act, 1961 overrides sections 28-438.
2. Re-computation of Arm's Length Price:
The CIT(A)/AO/TPO erred in re-computing the arm's length price as NIL for international transactions related to global e-mail charges, blackberry services, and Internet and other network charges, resulting in a TP adjustment of INR 8,67,68,740. The CIT(A)/AO/TPO also erred in re-computing the arm's length price for system maintenance and support services, resulting in a TP adjustment of INR 26,90,709. The Appellant prays that these adjustments be deleted.
3. Calculation of Surplus Income:
The CIT(A)/AO erred in confirming the surplus as calculated in Form 1 of the Insurance Regulatory and Development Act, 1999 instead of the actuarial report as per the Insurance Act 1938, to be the income of the Appellant in terms of section 44, read with Rule 2 in the First Schedule to the Act.
4. Tax Rate Applicability:
The CIT(A) erred in not adjudicating the ground regarding the tax rate of 12.5% applicable to life insurance companies.
5. Set Off of Brought Forward Losses:
The CIT(A) erred in not allowing the set-off of brought forward losses available to the Appellant.
6. Deduction Towards Transfer from Linked Fund:
The CIT(A) erred in not allowing the deduction towards the amount of transfer from the linked fund from the surplus disclosed in Form 1.
7. Exemption Under Section 10(34):
The CIT(A) erred in not adjudicating the ground regarding the exemption claimed by the Appellant u/s 10(34) of the Act towards dividend income of INR 1,27,69,632.
8. Penalty Proceedings:
The CIT(A) ought to have directed the ACIT to drop the penalty proceedings.
Additional Ground of Appeal:
The assessment order dated 25 April 2013 was challenged as void and bad in law for being passed beyond the period of limitation referred to in section 153 of the Act. The Tribunal admitted this ground and found that the TPO's order dated 30.01.2013 was time-barred by one day. Consequently, the draft assessment order dated 18.03.2013 and the final assessment order dated 26.04.2013 were also time-barred, making the assessee not an eligible assessee u/s 144C of the Act. The appeal of the assessee was allowed on this ground, rendering other grounds moot.
Result:
The appeal of the assessee was partly allowed, and the appeal of the revenue was dismissed as infructuous.
Appeal partially allowed due to time-barred TPO's order, rendering subsequent assessment orders invalid.
The appeal of the assessee was partly allowed, and the appeal of the revenue was dismissed as infructuous. The Tribunal found that the TPO's order was time-barred by one day, rendering subsequent assessment orders also time-barred. This made the assessee ineligible under the Act, resulting in the appeal being allowed on this ground. Other grounds raised by the parties were deemed moot.
Validity of order passed by the TPO u/s 92CA(3) - Period of limitation - HELD THAT:- After taking into consideration the material placed on record it is undisputed fact that transfer pricing officer has passed order u/s 92CA(3) on 30.01.2013 whereas the limitation for passing the said order u/s 92CA(3) expires on 29.01.2013. Therefore, taking into consideration the provision of the Act and decision of PFIZER HEALTHCARE INDIA (P.) LTD [2021 (2) TMI 1152 - MADRAS HIGH COURT] in the cases referred supra the order u/s 92CA(3) of the Act is time barred by 1 day.
The order of the TPO and draft assessment order are barred by limitation, therefore, resulting in assessee not being a eligible assessee u/s 144C(15)(b)(i) of the Act. Consequently, the final assessment was also bad in law - Decided in favour of assessee.
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ITAT restricts taxation to 22.5% profit element in on-money receipts, confirms Section 80IB(10) deduction eligibility
The core legal questions considered by the Tribunal in this batch of appeals primarily revolve around the tax treatment of "on-money" receipts (undisclosed cash receipts) in the hands of the Assessee, a partnership firm engaged in real estate development. The key issues are:
- Whether the entire amount of on-money receipts should be treated as income in the year of receipt or only the profit element embedded in such receipts should be taxed.
- The appropriate percentage of profit element to be applied on the on-money receipts for taxation purposes.
- The year of assessment in which the profit element of on-money receipts should be brought to tax, considering the Assessee's method of accounting.
- Whether the Assessee is entitled to claim deduction under Section 80IB(10) of the Income Tax Act in respect of additional income arising from on-money receipts relating to eligible housing projects.
- Whether the claim of deduction under Section 80IB(10) can be allowed in search-related reassessment proceedings if such claim was not made in the original return.
- The validity of the Assessing Officer's and CIT(A)'s estimation and treatment of cash expenses and income in the absence of complete documentary evidence.
Issue 1: Taxability of On-Money Receipts - Entire Amount or Profit Element Only
The legal framework involves the provisions of the Income Tax Act relating to income computation and the principles governing the taxation of undisclosed income discovered during search and seizure operations under Section 132 and reassessment under Section 153A. The Tribunal also examined judicial precedents including decisions by various High Courts and the Tribunal itself which have held that only the profit element embedded in on-money receipts should be taxed as income, not the entire receipt.
The Assessing Officer (AO) treated the entire on-money receipts as income, disallowing any deduction for expenses due to lack of documentary evidence. The CIT(A) partially allowed the Assessee's contention by estimating 45% of on-money receipts as profit element taxable in the year of receipt, allowing deduction of 55% as expenses. The Assessee argued for a 20% profit element based on net profit percentages declared in audited accounts, contending that the entire on-money receipts were advances and should be taxed on project completion.
The Tribunal noted that the AO had estimated income after considering seized documents but rejected expense claims for non-compliance with sections 30 to 36, 37, and 40A(3) of the Act. However, the Tribunal emphasized that the income was estimated based on material and not arbitrarily, placing the Assessee in a better position than cases where income is estimated ad hoc. The Tribunal relied on precedents where profit elements ranging from 12% to 17% of cash receipts were accepted as taxable income, and upheld the principle that only the profit element embedded in on-money receipts is taxable.
Accordingly, the Tribunal rejected the Revenue's contention to tax the entire on-money receipts as income.
Issue 2: Appropriate Percentage of Profit Element to be Taxed
The CIT(A) adopted 45% as the profit element based on a detailed computation that accounted for cash expenses quantified from seized documents, including stamp duty and registration charges, and other cash expenses. The CIT(A) also relied on profit rates adopted for sister concerns engaged in similar business activities.
The Assessee contended that 45% was excessive and urged adoption of 20%, supported by net profit percentages declared in audited returns ranging from 8.48% to 25.75%. The Tribunal observed that the CIT(A) had not considered cash expenses incurred for purchase of land, which if accounted for, would reduce the profit percentage to approximately 39.43%. Considering the nature of the Assessee's business (low-income group housing in Virar, Palghar) and the disclosed net profits, the Tribunal held that a fair estimate of the profit element would be 22.5% of on-money receipts.
This approach balanced the evidentiary deficiencies with the Assessee's business realities and prior disclosures, ensuring taxation of a reasonable profit element without being punitive.
Issue 3: Year of Taxation of Profit Element on On-Money Receipts
The Assessee followed the completed contract method of accounting, treating advances (including on-money receipts) as liabilities until project completion, when income is recognized. The Assessee argued that on-money receipts should be taxed in the year of project completion, consistent with its accounting method.
The Revenue contended that since on-money receipts were undisclosed and not recorded in books, they should be taxed in the year of receipt.
The CIT(A) had rejected the Assessee's claim for subsequent year taxation due to lack of substantiation. However, before the Tribunal, the Assessee furnished details showing that significant portions of on-money receipts had been offered to tax in later years, and the Revenue accepted these disclosures.
The Tribunal applied the settled legal principle that the same income cannot be taxed twice. It held that only the profit element (22.5%) of the balance on-money receipts not yet offered to tax should be brought to tax in the year of sale of flats booked by the Assessee, i.e., in the year of project completion.
Issue 4: Deduction under Section 80IB(10) on Additional Income from On-Money Receipts
The Revenue challenged the CIT(A)'s grant of deduction under Section 80IB(10) to the Assessee in respect of additional income arising from on-money receipts related to eligible housing projects. The Revenue argued that such deduction cannot be claimed if not made in the original return and that new claims cannot be allowed in reassessment proceedings under Section 153A.
The CIT(A) allowed the deduction, relying on judicial precedents including a Bombay High Court decision and Tribunal rulings holding that additional income discovered during search proceedings, which enhances business income from eligible projects, qualifies for deduction under Section 80IB(10) if the Assessee had claimed such deduction in original returns for the same projects.
The Tribunal upheld the CIT(A)'s reasoning, noting that the Assessee's claim was a continuation of the original claim and that the prohibitory conditions of Section 80A(5) did not apply. The Tribunal distinguished the facts from cases where no original claim was made and emphasized that denial of deduction would be unjust when the additional income clearly relates to eligible projects.
Issue 5: Estimation and Treatment of Cash Expenses and Income in Absence of Complete Documentary Evidence
The AO disallowed deductions for cash expenses due to lack of corroborative documentary evidence and non-compliance with statutory provisions. The CIT(A) accepted that expenses were incurred in cash but estimated profit element based on seized documents and remand reports.
The Tribunal held that estimation of income based on seized material and documents is permissible and not arbitrary. It recognized that incomplete records justify adoption of a higher profit rate but also acknowledged that some expenses were incurred and should be allowed. The Tribunal emphasized that the Assessee was in a better position than cases where no evidence is furnished, and thus a reasonable profit percentage should be adopted.
Application of Law to Facts and Treatment of Competing Arguments
The Tribunal carefully balanced the evidentiary deficiencies and the Assessee's submissions. It rejected the Revenue's demand to tax the entire on-money receipts as income, finding support in judicial precedents. It modified the CIT(A)'s 45% profit element to 22.5%, considering land purchase expenses and the nature of the business. The Tribunal accepted the Assessee's accounting method for taxing on-money profit element in the year of project completion, subject to the condition that income already offered to tax in subsequent years would not be taxed again. It upheld the grant of deduction under Section 80IB(10) on additional income from on-money receipts, following binding precedents. The Tribunal also recognized the legitimacy of estimating income and expenses based on seized materials in absence of full documentary proof.
Significant Holdings
"Only the profit element embedded in the cash/on-money receipts could be brought to tax in the hands of the Assessee."
"Where income has been estimated on the basis of information/material gathered, an Assessee cannot be placed in a position worse than in a case where income is estimated on ad-hoc basis without any supporting information."
"The net profit rate estimated in sister concerns engaged in similar business can be taken as basis for estimating net profit rate in group concerns."
"The same income cannot be taxed twice. Therefore, the profit element of on-money receipts already offered to tax in subsequent years cannot be taxed again."
"Additional income arising from on-money receipts pertaining to eligible housing projects enhances the business income and is eligible for deduction under Section 80IB(10), provided the deduction was claimed in original returns."
Final determinations:
- The appeals by the Revenue for Assessment Years 2010-11, 2012-13, 2013-14, and 2014-15 are dismissed.
- The appeals by the Assessee for Assessment Years 2012-13 to 2015-16 are partly allowed by restricting the addition of on-money receipts' profit element to 22.5% of the balance amount not yet offered to tax, to be taxed in the year of project completion.
- Deduction under Section 80IB(10) is allowed in respect of additional income from on-money receipts relating to eligible projects, consistent with original claims.
ITAT restricts taxation to 22.5% profit element in on-money receipts, confirms Section 80IB(10) deduction eligibility
ITAT Mumbai held that only profit element embedded in on-money receipts should be taxed, not entire receipts. Court determined 22.5% of on-money receipts as fair estimate of profit element based on assessee's historical profit rates averaging 14.15% and maximum 25.75%. Addition restricted to 22.5% of INR 1,90,71,000 being balance amount not offered to tax by assessee. Court confirmed assessee entitled to Section 80IB(10) deduction on additional income from on-money receipts for eligible projects. Revenue's appeal dismissed.
Taxation of on-money receipts - contention of the Assessee is that only 20% of the on-money receipts should be brought to tax as income - Revenue contends that the CIT (A) committed error in allowing deduction for expenses in absence of any proof of the same having been furnished by the Assessee during the assessment or first appellate proceedings and therefore entire amount of on-money receipts should be taxed in the hands of the Assessee.
HELD THAT:- Unaccounted sale and expenditure has been worked out based on the seized documents. However, in our view, given the facts and circumstances of the case, it cannot be said that in the income of the Appellant has not been estimated. The income of the Appellant has been estimated by the Assessing Officer after taking into account the information/material gathered. In our view, where income has estimated on the basis of information/material gathered, as is the situation in the present case, an Assessee cannot be deleted to a possession worse than in a case where income has estimated on ad-hoc basis, say in a case where an Assessee chooses not to furnish relevant document/details or not to participate in the assessment proceedings, and the estimate is made on ad-hoc basis any supporting information/details. A perusal of the decision relied upon by the Assessee during the course of hearing (placed at pages 15 to 38 of the Compendium of Cases) shows that estimation of profits as ad-hoc percentage of the cash receipts has been accepted.
Only profit element embedded in cash/on-money receipts could be brought to tax in the hands of the Assessee. Therefore, we find no infirmity in the order passed by the CIT (A) to the extent that the CIT (A) holds that only profit element embedded in the cash receipts is liable to be taxed in the hands of the Assessee. In view of the aforesaid, we reject the contention of the Revenue that entire cash receipts should be brought to tax.
Computation of profit element - CIT (A) has concluded that 45% of the on-money receipts are the profit element liable to tax in the hands of the Assessee - For the Assessment Year 2009-10 to 2015-16, the maximum net profit rate declared by the Assessee was 25.75%. The average of the profit for the Assessment Year 2009-10 to 2015-16 comes to around 14.15% whereas it has been contended on behalf of the Assessee that rate of 20% be adopted for determining the profit element embedded in cash receipts. Keeping in view the facts and circumstances of the case, and to meet the ends of justice we hold that 22.5% of on-money receipts would be fair estimate of profit element which should be brought to tax in the hands of the Assessee.
Year in which 22.5% of on-money receipts should be brought to tax - As in appellate proceedings before us the Ld. Authorised Representative for the Assessee reiterated the submission that Assessee has offered the on-money receipts to tax in subsequent years and has provided the above details. The on-money receipts offered to tax by the Assessee in the subsequent assessment years have been accepted by the Revenue. It is settled legal position that same income cannot be taxed twice. We have allowed already held that only the profit element consisting of 22.5% of on-money recipes can be brought to tax (as opposed to the entire on-money receipts as contended by the Revenue). Accordingly, we restrict the addition under consideration for the Assessment Year 2012-13 to 22.5% of INR 1,90,71,000/- being the balance amount of on money receipts not offered to tax by the Assessee till the date and the same shall be taxed in the year of sale of flats booked by the Assessee.
Benefit of deduction u/s 80IB(10) - on-money receipts pertaining to the eligible projects brought to tax in the hands of the Assessee - HELD THAT:- The CIT (A) has followed the decision Jupiter Construction [2021 (12) TMI 537 - ITAT MUMBAI] while holding that the Assessee would be entitled to claim deduction under Section 80IB(10) of the Act in case of additional income arising from on-money receipts pertain to eligible projects provided the Assessee had claimed deduction under Section 80IB(10) of the Act in the original return of income and had not made claim for deduction under Section 80IB(10) of the Act for the first time for the relevant assessment year in the return of income filed response to notice issued under Section 153A of the Act.
No infirmity in the order passed by CIT (A) on this issue. Accordingly, Ground No. 3 to 5 raised by the Revenue in the appeal are dismissed.
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High Court Upholds ITAT Order, Affirming Tax Assessment Limits Under Section 153A with Clear Jurisdictional Boundaries
The Calcutta High Court dismissed the revenue's appeal challenging the Income Tax Appellate Tribunal's order concerning the scope of assessment under Section 153A of the Income Tax Act. The Court relied on the Supreme Court's ruling in Principal Commissioner of Income Tax, Central-3 vs. Abhisar Buildwell [P] Ltd. ([2023] 149 taxmann.com 399 [SC]), which clarified the legal position as follows:i] Upon search under Section 132 or requisition under Section 132A, the Assessing Officer (AO) assumes jurisdiction for block assessment under Section 153A.ii] All pending assessments/reassessments stand abated.iii] If incriminating material is found during the search, the AO can assess or reassess the total income, including completed or unabated assessments, considering such material and other available information.iv] If no incriminating material is found, the AO cannot make additions in completed or unabated assessments based solely on other material. However, reopening under Sections 147/148 remains available if conditions under those sections are met.The Court held that this ruling aligns with precedents from the Delhi High Court (Commissioner of Income Tax [Central]-III vs. Kabul Chawla [2016] 380 ITR 573) and Gujarat High Court (Principal Commissioner of Income Tax-4 vs. Saumya Construction [2016] 387 ITR 529). Consequently, the appeals and review petition by the revenue were dismissed with no costs, and the question of law was answered in accordance with the Supreme Court's decision.
High Court Upholds ITAT Order, Affirming Tax Assessment Limits Under Section 153A with Clear Jurisdictional Boundaries
HC dismissed revenue's appeal challenging ITAT's order on Section 153A assessment. SC ruling clarified AO's jurisdiction post-search: pending assessments abate, incriminating material allows reassessment, absence of such material prevents additions. HC aligned with previous precedents, rejecting revenue's challenge and affirming the established legal interpretation without imposing costs.
Scope of assessment u/s 153A - HELD THAT:- The legal issue which has been raised by the revenue has been answered in Abhisar Buildwell [P] Ltd.[2023 (4) TMI 1056 - SUPREME COURT] held that it is an agreement with a view taken in the case of Commissioner of Income Tax [Central]-III vs. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] and that of Saumya Construction [2016 (7) TMI 911 - GUJARAT HIGH COURT] as held in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search u/s 132 or requisition u/s 132A. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.
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Tax Deduction Denied: Timely Provident Fund and ESI Contributions Crucial for Claiming Expense Under Section 36(1)(va)
1. ISSUES PRESENTED and CONSIDERED
- Whether deduction claimed for delayed payment of employees' contribution to Provident Fund (PF) and Employees State Insurance (ESI) is allowable under the Income Tax Act.
- Whether such disallowance can be made by way of adjustment under Section 143(1)(a)(iv) of the Income Tax Act.
- Whether deduction for employees' contribution to PF and ESI can be allowed under Section 37(1) of the Income Tax Act.
- Determination of the relevant due date for payment of employees' contribution to PF and ESI for allowing deduction.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Allowability of deduction for delayed payment of employees' contribution to PF and ESI
Relevant legal framework and precedents: Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act provides that any sum payable by the employer as employees' contribution to PF and ESI, if not deposited within the prescribed time, shall be treated as income of the employer and thus not allowable as deduction. The Supreme Court's ruling in a binding precedent confirms this interpretation.
Court's interpretation and reasoning: The Tribunal relied on the Supreme Court's decision which held that unless the employees' contribution to PF and ESI is deposited within the due date prescribed under the relevant statute, the amount must be treated as income under Section 36(1)(va) read with Section 2(24)(x). The Tribunal rejected the contention that deduction is allowable if payment is made before the due date of filing the return of income.
Key evidence and findings: The assessee had claimed deduction for employees' contribution to PF and ESI which was not deposited within the prescribed statutory due date. The Centralized Processing Centre (CPC) disallowed the deduction accordingly, and the first appellate authority upheld the disallowance.
Application of law to facts: Since the payment was delayed beyond the prescribed statutory due date, the deduction was rightly disallowed under Section 36(1)(va) and Section 2(24)(x).
Treatment of competing arguments: The assessee's argument that deduction should be allowed if payment was made before filing the return was rejected based on binding Supreme Court precedent.
Conclusion: Deduction for delayed payment of employees' contribution to PF and ESI is not allowable if payment is not made within the prescribed statutory due date.
Issue 2: Validity of disallowance by adjustment under Section 143(1)(a)(iv)
Relevant legal framework and precedents: Section 143(1)(a)(iv) allows the Assessing Officer to make adjustments to income based on information available, including disallowance of inadmissible deductions.
Court's interpretation and reasoning: The Tribunal rejected the assessee's contention that disallowance of deduction for delayed payment of PF/ESI contribution cannot be made by adjustment under Section 143(1)(a)(iv). It relied on a coordinate bench decision which upheld such adjustment as valid.
Key evidence and findings: The adjustment was made at the processing stage by the CPC and sustained by the first appellate authority.
Application of law to facts: The disallowance made by adjustment under Section 143(1)(a)(iv) was held to be valid and in accordance with law.
Treatment of competing arguments: The assessee's objection to the mode of disallowance was overruled based on precedent.
Conclusion: Disallowance of deduction for delayed payment of employees' contribution to PF and ESI can be validly made by adjustment under Section 143(1)(a)(iv).
Issue 3: Allowability of deduction under Section 37(1) of the Income Tax Act
Relevant legal framework and precedents: Section 37(1) allows deduction of any expenditure not specifically disallowed elsewhere, if it is incurred wholly and exclusively for business purposes.
Court's interpretation and reasoning: The Tribunal found no merit in the assessee's reliance on Section 37(1) for allowing deduction of delayed payment of employees' contribution to PF and ESI. The cited coordinate bench decision merely restored the issue to the Assessing Officer without expressing any opinion on allowability under Section 37(1).
Key evidence and findings: No binding precedent was found to support allowability of such deduction under Section 37(1).
Application of law to facts: Since Section 36(1)(va) specifically governs the treatment of delayed PF/ESI payments, Section 37(1) cannot be invoked to override the statutory disallowance.
Treatment of competing arguments: The Tribunal declined to accept the argument that Section 37(1) could be used to claim deduction for delayed payments.
Conclusion: Deduction for delayed payment of employees' contribution to PF and ESI is not allowable under Section 37(1) of the Income Tax Act.
Issue 4: Determination of the relevant due date for payment of employees' contribution to PF and ESI
Relevant legal framework and precedents: The PF and ESI Acts prescribe specific due dates for payment of employees' contribution. The due date is not linked to the salary payment date or the date of filing the income tax return.
Court's interpretation and reasoning: The Tribunal directed the Assessing Officer to verify the factual dates of payment of employees' contribution to PF and ESI. If such payments were made within the due date prescribed under the PF and ESI Acts or within any grace period allowed, deduction should be allowed.
Key evidence and findings: The assessee contended that the due date should be reckoned with reference to salary payment date; however, the Tribunal emphasized adherence to statutory due dates under the PF and ESI Acts.
Application of law to facts: The Tribunal left open the possibility of allowing deduction if payment was made within the prescribed statutory due dates or grace period, subject to factual verification.
Treatment of competing arguments: The Tribunal rejected the assessee's broader interpretation of due date but allowed factual verification for compliance with statutory timelines.
Conclusion: The relevant due date for payment of employees' contribution to PF and ESI is the date prescribed under the respective statutes, and deduction can be allowed only if payment is made within that period or any applicable grace period.
Tax Deduction Denied: Timely Provident Fund and ESI Contributions Crucial for Claiming Expense Under Section 36(1)(va)
The HC upheld disallowance of tax deduction for delayed payment of employees' PF and ESI contributions under Section 36(1)(va). The court rejected the assessee's arguments for deduction under alternative provisions, affirming that statutory contributions must be deposited within prescribed due dates. The disallowance through Section 143(1)(a)(iv) adjustment was deemed valid, with the AO directed to verify actual payment dates for potential deduction.
Disallowance of deduction claimed being delayed payment of Employees Contribution to Provident Fund (PF) and Employees State Insurance (ESI) - HELD THAT:- We unable to accept such contention of the assessee in view of the binding ratio laid down in case of Checkmate Services P. Ltd. [2022 (10) TMI 617 - SUPREME COURT] wherein, it has been held that unless employees contribution to PF and ESI are deposited within the due date prescribed under the relevant statute governing such payments, the amount in question has to be treated as income of the assessee in terms of section 36(1)(va) read with section 2(24)(x) of the Act. Therefore, the disallowance has to be upheld. In so far as the contention of learned counsel for the assessee that such adjustment is not contemplated under Section 143(1)(a) (iv), we are unable to accept the contention in view of the decision of Savleen Kour [2023 (2) TMI 51 - ITAT DELHI]
Contention of the assessee that the deduction is otherwise allowable under Section 37(1) - No merit in such submission. In case of BBG Metal Syndicate Pvt. Ltd. [2022 (11) TMI 1428 - ITAT CUTTACK] while considering such submission has not expressed any opinion and has simply restored the issue to the file of the Assessing Officer. Therefore, the decision cited cannot be regarded to be a precedent for laying down the ratio that the payment made can be allowed as deduction under Section 37(1) of the Act. In so far as, learned counsel’s contention that the due date should be calculated with reference to the due date for payment of salary, direct the AO to factually verify the date of payment of employees contribution to PF and ESI and in case they are found to have been paid within the due date prescribed under the PF and ESI Act or within the grace period, if any, under these Acts, then, deduction can be allowed
Appeal is allowed for statistical purposes.
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Credit cooperative society wins deduction under Section 80P(2)(a)(i) for interest earned from bank deposits
Issues:
1. Disallowance of deduction claimed by the appellant u/s 80P(2)(a)(i) and 80P(2)(d).
2. Interpretation of provisions related to deduction u/s 80P for a cooperative society.
3. Applicability of interest income derived from surplus funds deposited with banks for deduction u/s 80P(2)(a)(i).
Analysis:
1. The appeal was filed against the order disallowing the deduction claimed by the assessee u/s 80P(2)(a)(i) and 80P(2)(d). The assessee contended that the deduction was erroneously disallowed by the CIT(A) despite being entitled to it under the law.
2. The core issue revolved around the interpretation of provisions related to deduction u/s 80P for a cooperative society. The CIT(A) held that only interest derived from credit provided to members is eligible for deduction u/s 80P(2)(a)(i), excluding interest from surplus funds deposited with banks. The appellant argued that interest from surplus funds should also qualify for the deduction.
3. The crucial argument presented was regarding the applicability of interest income derived from surplus funds deposited with banks for deduction u/s 80P(2)(a)(i). The appellant cited various judicial pronouncements, including decisions by ITAT Mumbai and other courts, to support their claim that such interest income should be considered part of the business income of the cooperative society and hence eligible for deduction.
4. After considering the submissions and judicial precedents, the tribunal found merit in the appellant's argument. Citing a decision by the Karnataka High Court, the tribunal held that interest income earned from deposits with banks is attributable to the business of providing credit facilities to members by a cooperative society. As per the court's interpretation, such income is part of the profits and gains of the business and qualifies for deduction u/s 80P(2)(a)(i).
5. Relying on the decision of ITAT Mumbai in a similar case, the tribunal directed the Assessing Officer to allow the deduction u/s 80P(2)(a)(i) for the appellant. The tribunal emphasized that interest income from surplus funds deposited with banks is integral to the business activities of a cooperative society providing credit facilities, hence eligible for the deduction.
6. In conclusion, the tribunal allowed the appeal of the assessee, setting aside the disallowance of the deduction claimed u/s 80P(2)(a)(i). The order was pronounced in favor of the appellant on 26.04.2023, based on the interpretation of relevant legal provisions and judicial precedents supporting the eligibility of interest income from surplus funds for deduction under section 80P.
Credit cooperative society wins deduction under Section 80P(2)(a)(i) for interest earned from bank deposits
ITAT Mumbai allowed deduction u/s 80P(2)(a)(i) to a credit cooperative society. The tribunal held that interest earned from bank deposits constitutes business income attributable to providing credit facilities to members. Relying on precedents including Navbharat Urban Cooperative Credit Society Ltd and other cooperative society cases, the tribunal directed the AO to allow the deduction claim, ruling in favor of the assessee.
Deduction claimed u/s 80P(2)(a)(i)/80P(2)(d) - Assessee is a credit cooperative society and provide credit facilities to its members - HELD THAT:- As relying on case of Navbharat Urban Cooperative Credit Society Ltd [2021 (12) TMI 780 - ITAT MUMBAI] held that interest earned from amount kept with bank is part of the business income of the assessee and income so derived is the profit and gains of business attributable to the activity of carrying of business of providing credit facilities to its members by a cooperative society and is liable to be deducted from the gross total income u/s 80P and also allowed the deduction u/s 80P(2)(a)(i) of the Act.
We have also perused the decision of Jaoli Taluka Sahkari Patpedhi Maryadit [2015 (9) TMI 170 - ITAT MUMBAI] and Gandhinglaj Taluka Patpedhi Ltd. [2015 (12) TMI 287 - ITAT MUMBAI] - Thus direct the A.O to allow the claim of deduction of the assessee u/s 80P(2)(a)(i) of the Act. Decided in favour of assessee.
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